maurice troute

Monday, September 18, 2006

The Apple iTV, Netflix has been gutshot!

Tuesday Sept. 12th Apple Computer outlined a new product. I am not talking about the new iPods, or the iTunes Movies, we all new those were coming. What I am talking about is the iTV (or as Robert X. Cringely calls it, Airport Video Express). This little device will sit on top of your TV and allow you to view your iTunes library which will include, TV shows, movies, iPhoto slide shows and music. Big deal you say, there are already several products out there that can do that, well sort of, none of them are really capable of integrating with iTunes. Most of them are classified as networking products and are tied to Windows and its DRM schemes. What is so interesting about the iTV is that it is not a MediaCenter PC or a networking device. It is a simple front end for users to interact with iTunes via Frontrow. It is designed to be simple and easy to use. No configuring a MediaCenter PC or need to understand TCP/IP or have any idea what CODEC was used to encode your media. If it's in your iTunes library, it will play on the iTV, pretty simple, and simple sells product to the general public. They want to plug it in and turn it on and have it work, just the way their iPod, or DVD player works. Imagine connecting your iTV via the HDMI or component cables to the TV, turning it on and seeing a list of available Movies, TV shows, Music or Photos. Then simply selecting your choice and enjoying it. Sort of like changing the channel on your cable box or choosing an on demand movie...wait, what if..

Has Netflix just been shot in the gut?

You know those gunshot wounds that all the secondary charters in western movies get. These are the gunshot wounds that end up being a slow agonizing fatal shot. So how does Netflix fit here? Let me explain.

Netflix today enjoys a very nice position in the video rental business, I am a user and enjoy the service very much. But I have one complaint, well probably several but one major complaint. I have to go to the mailbox to get my movie and then I have to send my movies back, then wait for my movies to be received and checked in then wait for my new movies to be delivered to me...Due to this process and forgetfulness on my part, I tend to visit the local Hollywood Video a few times a month. For Netflix it's a very effective technique to maximize revenue by limiting your unlimited movie viewing. The general consensus is that Netflix losses money if you view more than 5 movies a month, so this process seems to slow your viewing down. Bully for them, but I want more...

My Dream Device

My perfect world would have all of my movies pre-loaded on my DVR. I want something similar to the on demand system that my cable company has but I want better movies and faster interface response. I also want all the movies in HD, Comcast does offer some HD content but it is very limited. I really have no desire to see The Birdcage in HD. So the ideal solution would be to download my Netflix movies direct to a set-top box and infact Netflix has considered it but apparently ran into a few snags, namely the movie studios, If they do get it going though, they still don't see it happening anytime soon, the CEO of Netflix says that downloads will be ready for prime time in five to ten years! That is why they will be late to the party.

Then there is Moviebeam, While the concept is awesome and the delivery system ideal, the content part of the equation is terrible, It works by downloading movies over the air to your Moviebeam set-top box, thanks to a network of PBS stations, The box comes pre-loaded with 100 movies at the point of sale. After that 10 new movies are loaded each week replacing older movies on the system. First thing that hits me is what if I haven't watched the movies I wanted to watch? To bad so sad, el-deleteo. Second, what ten movies are being sent to me, and do I have any interest in seeing them? To bad so sad, you get to watch Stealth and you'll like it! So the drawbacks for Moviebeam basically come down to selection, choose from a predefined list and that's it, no choice, no extensive catalog of movies, no obscure artsy or foreign films. If it wasn't a feature at the googleplex, then it probably won't be offered. Then there is Vongo, a PC based download service. Another fantastic idea but to many limitations, the first of which is the poor quality of the video. Secondly the rate structure, $10 per month AND $4 for new release PPV. Lastly, I want to watch movies on my 65" HDTV, not my 20" computer monitor. I know I know I could hook my computer to my TV via the VGA connector and the redirect my video blah blah blah, or I could just rent a dvd....I am not interested in setting up a MediaPC, my wife can't even work the stinking universal remote, how could I expect her to figure out a MediaCenter PC. I WANT EASE OF USE PERIOD! I want to turn it on select the movie and watch it where I normally enjoy my movies, in my Man-Room, not the den!

So imagine if you will, Apple introduces the iTV (or whatever they end up calling it) and it plays all of your iTunes media ON YOUR TV! and probably any other media you manage to get onto your computer provided it plays in QuickTime. But with one new feature, video rental. For $15-20 dollars a month download 3 movies at a time and watch them WHENEVER you want, not within some idiotic time frame like 48 hours. You also can keep them until you delete them so watch it 50 times or over the course of a month, whatever, it doesn't matter because you only get three active downloads at a time. Delete one and the next one in your queue automatically downloads to refill your iTV. The movie studios would never go for it you say? Ah, but THEY don't have to, there only needs to be one, and that one will be Disney. Disney is totally on board with this type of service, they were the original owners of Moviebeam which has since been spun off with backing from Cisco and Intel..

So they will be the first to offer rentals over iTunes just like they are the first to sell movies over iTunes. The other Studios will follow suite just as they did with the TV shows. The Fairplay DRM from Apple seems to be pretty effective in limiting all but the geekyist from bootlegging iTunes content, and I have yet to here of anyone copying their Desperate Housewife's downloads to DVD. So the studios can be fairly sure that the content will be secure. Certainly more secure than DVD's and they have no qualms about renting them.

So what it will come down to is competition. Apple and Disney certainly see eye to eye on this. Especially since Jobs is the biggest single share holder and a member of the board. This relationship and the subsequent success of iTunes movies and I predict an iTunes Rental Service, will require that the other Studios follow suit. I mean if Mickey Mouse trusts Apple to do it then shouldn't everyone...


Anonymous said...

The real problem here is that Apple is the group that is preventing the other players from integrating iTunes. Many of them would, if they were given half a chance - but Apple (unlike Amazon and other services) gives NO developer access to the iTunes store and very little official support for accessing the iTunes library.

5:35 PM

Reese said...

I am not sure how this is relevant to this conversation. Additionally since when is it Apples responsibility to assure other developers a revenues stream from a service that they have spent millions of dollars to develop. Exactly how is Amazon allowing developers access to their new video service. If that were the case then Mac support would surely be available.

9:14 AM

Anonymous said...

Funny, you noticed the flaw in Netflix model: if you watch more than 5 movies a month, Netflix loses money. The same thing can be said about the model you proposed, except this time, the barrier to loss is even lower. Netflix has this built in delay that prevents you from watching too many movies: the post office factor, i.e. the time between you placing a movie in the mailbox to the time for Netflix to process your next movie to the time you get it.

What you proposed will let people watch 3 movies a day, delete them all and get another set of 3 movies the next day. There is no incentive for people to keep a rental file around since you'll be able to download it again later. All it takes is the 1 hour time per movie to download it which means nothing as you should be able to watch while you download. For $15 a month, Apple must pay the movie studios for every rental and pay all the bandwith for all movies you can watch in a month. Yikes!

3:40 PM

Reese said...

Except that downloading three movies would probably take several hours, especially if they were offered in HD.

The big difference with this proposed model and the Netflix model is simple. There is no physical distribution network, hence no associated costs. No regional DC's, no staff or equipment to check movies in, inspect for damage, re-stock and then ship back out. There would be no physical inventory period, dramatically reducing costs. They would also be not shipping costs. The USPS cost alone have got to be a significant cost, the USPS does not generally give volume discounts.

So maybe your right but I think the 2 models are different enough that the cost models would be equally different. IMHO

8:48 PM


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